Outstanding Balance

Meaning and Definition

Outstanding balance, in the context of car finance, refers to the remaining amount owed on a loan or finance agreement. It represents the principal amount borrowed, minus any payments made towards the loan, plus any applicable interest and fees that have accrued. The outstanding balance decreases as the borrower makes regular payments towards the loan, and it is typically provided in the loan statements or finance agreement.

Why it is important to know

Understanding the concept of the outstanding balance is crucial for borrowers to keep track of their loan repayment progress and financial obligations. It helps borrowers determine the amount remaining to be repaid and assess their overall financial situation. By knowing the outstanding balance, borrowers can plan their future payments, evaluate the impact of any additional payments or overpayments, and have a clear understanding of their financial liabilities.

Example in car finance

Suppose a borrower obtains a car loan for £15,000 with a repayment term of five years. After making monthly payments for two years, the borrower checks their loan statement and finds that the outstanding balance is £8,000. This indicates that they still owe £8,000 to the lender to fully repay the loan. The outstanding balance decreases with each payment, and the borrower can refer to their loan statement or contact the lender to obtain the most up-to-date outstanding balance information.